Munich: German companies are not prepared for the full impact of the financial and euro crisis, says strategy consulting firm Roland Berger.
- Three out of five German managers consider the economic situation in Europe to be critical or extremely critical
- But over 80% think Germany's economy is doing OK
- German companies expect the financial and euro crisis to have a strong negative effect on the real economy in early 2012 — revenues and profits may shrink
- The biggest challenge facing most firms is how to manage the prevailing uncertainty and volatility
- Although most companies have taken steps to secure profits, they themselves consider these steps insufficient.
- Companies make little use of vital tools such as trend radars for spotting market opportunities and threats, scenario planning and stress tests on corporate strategy
Capital markets may be shrinking around the globe and the instability of the euro creating wide-spread insecurity, but the real economy in Germany is still growing strongly. Around 80% of companies in a Roland Berger survey consider the current economic situation in Germany positive. They are not so upbeat about the prospects of the eurozone, however: three out of five consider the economic situation in Europe critical or extremely critical. Almost all firms think that the financial and euro crisis will have a significant downward impact on revenues and profits in the last quarter of 2011 and first quarter of 2012. At the same time, four out of five companies say they are not properly prepared for such a downturn.
These are the central findings of Roland Berger's "Executive Quick Survey — Assessment of the Economic Situation in Fall 2011". The survey included some 150 senior decision makers in large and medium-sized German companies in various branches of industry.
"German companies expect things to cool down significantly in the last quarter of 2011 and first quarter of 2012 — despite the currently flourishing economy and positive quarterly figures. Indeed, the prevailing insecurity is already having an impact on consumer purchasing behavior and investment decisions by companies. Firms expect to see revenues stagnate or even shrink," says Nils Kuhlwein von Rathenow, Partner at Roland Berger.
So far, the impact of the euro crisis can only be seen on capital markets. But German companies are spotting the first signs of trouble in their financial figures. "A good two-thirds of respondents say that they already felt the impact of less optimistic economic growth prospects in their first half-year figures, and have taken operational action to shore up profits. But a majority of companies say they haven't done enough," says Kuhlwein von Rathenow. "The biggest challenge facing companies is the prevailing insecurity and volatility seen in their performance figures," adds Andreas Bonnard from Roland Berger. "Companies have learned from the previous financial and economic crisis. For the most part, they have increased their liquidity reserves and improved flexibility. But traditional methods of safeguarding performance can only have a limited impact," says Bonnard.
German economic upswing intact — for the moment
The latest quarterly results for industry in Germany were positive. But companies are already seeing a drop in orders. "German firms think that the current economic situation in Germany is positive — unlike the situation in the rest of Europe, which 60% think is critical," says Nils Kuhlwein von Rathenow from Roland Berger. "In many cases, strong business in emerging markets is the only thing helping managers sleep at night. Stable growth is also expected in these regions for 2012," says Nils Kuhlwein von Rathenow.
Respondents blame the slowdown in economic growth on the level of national debt in the United States and some European countries, the turbulence this leads to in currency markets and the difficulty of securing financing.
Companies not properly prepared
In 2011, approximately two-thirds of companies experienced significant growth in revenues. Next year, only about 40% expect to do so, according to the study. And profit forecasts are even more modest. Some 60% of the managers surveyed expect to see profits stagnate in 2012. "Given that this is the case, it is all the more surprising that four out of five companies say they haven't done enough to prepare themselves," says Nils Kuhlwein von Rathenow.
Almost one-third of companies fail to use tools such as trend radars for spotting market opportunities and threats, scenario planning and corporate strategy stress tests for minimizing risk. Only one in five German firms uses scenario techniques, and just 14% carry out regular corporate strategy stress tests. "A majority of companies are worried that volatility will increase in the future. That would have an impact on sales and profits. Firms that manage these insecurities put themselves at a distinct competitive advantage," says Andreas Bonnard. "Companies that anticipate not just their own performance but that of their competitors are able to prepare themselves for strategic acquisitions or extending the value chain," says Nils Kuhlwein von Rathenow.